Working Capital

Small Businesses Face Immense Cash Flow Challenges in 2020 – How Alternative Finance Can Help Them Navigate

By Garrett Baldwin

Accountants boost cash flow

How to Boost Working Capital Despite Coronavirus, Low Oil Prices, or Fears of a Recession

The global economy has experienced tremendous turmoil in 2020. 

Oil prices cratered after OPEC failed to reach a deal to cap production. The coronavirus has crippled supply chains and paralyzed commerce in Asia, Europe, and North America. 

And even as governments pump trillions of dollars into the financial system, the odds of a recession are rising. 

Small business owners face steep challenges in the coming months, particularly those relying on customers to pay their bills on time. Many SMBs may rush to apply for bank loans, consider selling equity to raise cash, or try other traditional, time-consuming measures to boost cash flow. 

But before fretting about the road ahead, take some time to learn about a practical solution to get the working capital you need on your terms. Alternative finance companies have shown incredible success in helping these same businesses reach their funding needs. If you haven’t heard of alternative finance, take some time to learn how it can not only help companies survive in 2020 but also help them thrive. 

What is Alternative Finance and Why is it Important?

Alternative finance refers to capital funding outside of the mainstream world of banking, 

insurance, and other financial verticals. 

Following the 2008 financial crisis, many companies found themselves struggling to obtain credit and financing due to a massive liquidity crunch in the markets. With mainstream banks facing greater regulatory scrutiny and criticism, the alternative finance industry emerged as a viable source of funding, innovation, and leadership for the 21st-century economy. 

With many people now worried about a recession, alternative finance lenders are rising to meet the challenges we face today. Alt-Fi practices have radically improved the funding process, making it faster, easier, and less time-consuming than legacy lenders. 

A few examples of today’s best alternative finance practices include:

Invoice factoring or Invoice Financing

This is the practice of using existing customer invoices as collateral to get funding quickly. Within this solution, small businesses can dramatically reduce the time required to get paid for work they’ve already done. Rather than wait 30, 60, or even 90 days for large clients to pay, they can sell these invoices to a factoring company and receive working capital in as fast as 24 hours.

This is FundThrough’s business. You can find us in the Quickbooks app store or feel free to connect your QBO account to learn how much you qualify for. 

Crowdfunding

Rather than face the steep odds of bank loan approval, anyone with an idea can visit sites like Kickstarter and raise startup capital from donations. Companies can also issue equity in exchange for crowdfunding or rewards (incentives), two strategies that disrupt the existing venture capital model. 

Peer-to-Peer Lending

This option allows individuals and companies to get access to loans through a platform that matches them with investors. While interest rates remain very low, thus impacting savers, P2P lending gives anyone access to higher yields, while borrowers obtain a quick infusion of cash without the long bank application process. To learn more about P2P lending, be sure to visit Lending Loop.

To learn about other forms of alternative lending and the great companies helping small businesses get the capital they need, visit Hockeystick’s list of Active Funders in Canada. This list helps match companies with potential funding options and provides insight into the various alternative finance companies and the types of businesses that they fund. 

American companies may consider this list of Federal, state, and private resources available.

Small businesses – impacted by the recent spread of coronavirus – can also explore government funding solutions in their home country. An active list of grants, programs, and relief measures is updated on a regular basis on the Shopify Blog.

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